Proposed Tax Changes in Budget 2024 Likely to Ignite Principal Housing Demand, Send Doctors Abroad
The play in Canada, once again, will be to buy principal residences. (In the midst of housing crisis, no less.)
This is because, after proposed tax changes, the principal residence exemption will remain the only tax shelter with an unlimited ceiling available to the average Canadian.
Inheritance of a principal residence is also, generally, tax-free.
This is a perfect investment for Canadian professionals, because they happen to be shopping around for tax breaks right now.
Many Professionals’ Taxes Are Going Up
Under the proposed tax changes in Budget 2024, corporations will taxed at a 66.6% capital gains inclusion rate from the first dollar.
It is a misconception that corporations will get the $250,000 lower tax threshold. They do not. This only applies to individuals.
This 66% inclusion rate translates to roughly a 33% to 35% capital gains tax rate for corporations in most provinces. And remember, they already paid corporate taxes of between 9% and 25% on this money.
Here is another misconception: this only applies to multi-national corporations. It doesn’t.
As it is written, these tax hikes will apply to all corporations, and probably your family doctor too.
To make matters worse, corporations are also specifically excluded from the new entrepreneurial tax credits proposed in Budget 2024.
Doctors, Lawyers, Chiropractors, Accountants and Other Professionals Will be Looking to Buy Big
Many professional small-business corporations run by doctors, lawyers, chiropractors and accountants are used as an RRSP.
It provides them with a tax-deferred way to invest their money.
Tax deferral is not some shady maneuver that only billionaires do. Everyone does it in their RRSP and within their pension plans. It just means you pay taxes later, and can invest on a pre-tax basis.
Now, these same professionals are facing a proposed 32% larger tax bill (25% before, 33% after) if they cash out their investments in their corporation on or after June 25th 2024.
A Massive Incentive to Cash Out and Put Their Money to Work Elsewhere
A 32% tax hike coming within two months is a massive incentive to re-evaluate your retirement strategy and move your money around.
What better option than jumping on the principal residence bandwagon?
Why not buy a big ol’ piece of land with a luxury home on it and just sit on it?
The gains are tax free, and there no limit to how big you can buy.
Plus, it’s really the only option left — they cant simply cash out all of their wealth and buy an RRSP; there are low annual limits on RRSP contribution room.
Another Option is to Leave the Country Entirely, Something that Professionals are Certainly Considering Right Now
Professionals in Canada are almost certainly exploring their options in other countries.
These professionals are very portable, and most countries would happily provide a work visa to a trained professional, especially a doctor.
Doctors who were considering coming to Canada will also certainly consider whether they want to pay these increased taxes.
Overall, this budget is an unmitigated disaster that will almost certainly exacerbate our two most pressing issues: a housing shortage and a shortage of health-care professionals.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change.
